Question

Remeasurement of financial statements Assume that your company owns a subsidiary operating in Canada. The subsidiary has adopted the Canadian Dollar (CAD) as its functional currency. Your parent company operates this subsidiary like a division or a branch office, making all of its operating decisions, including pricing of its products. You conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured prior to consolidation. Following are the subsidiary’s financial statements (in CAD) for the most recent year:

	(in CAD)
Beginning inventory	2,346,750
Purchases	6,139,350
Ending inventory	(2,816,100)
Cost of goods sold	5,670,000
Land	2,058,840
Building	3,780,000
Accum. deprec.-building	(1,890,000)
Equipment	2,520,000
Accum. deprec.-equipment	(1,260,000)
Property, plant, and equipment (PPE), net	5,208,840
Depreciation expense-building	189,000
Depreciation expense-equipment	252,000
Depreciation expense	441,000

	(in CAD)
Income Statement:
Sales	9,450,000
Cost of goods sold	(5,670,000)
Gross profit	3,780,000
Operating expenses	(2,016,000)
Depreciation	(441,000)
Net income	1,323,000
Statement of retained earnings:
BOY retained earnings	4,961,250
Net income	1,323,000
Dividends	(132,300)
Ending retained earnings	6,151,950
Balance Sheet:
Assets
Cash	2,689,470
Accounts receivable	2,192,400
Inventory	2,816,100
Property, plant, and equipment (PPE), net	5,208,840
Total assets	12,906,810
Liabilities and stockholders' equity
Current liabilities	1,602,720
Long-term liabilities	3,734,640
Common stock	630,000
APIC	787,500
Retained earnings	6,151,950
Total liabilities and equity	12,906,810

The relevant exchange rates for the $US value of the Canadian Dollar (CAD) are as follows:

BOY rate	$0.70
EOY rate	$0.76
Avg. rate	$0.73
Dividend rate	$0.75
Historical rates:
Beginning inventory	$0.70
Land	$0.74
Building	$0.74
Equipment	$0.74
Historical rate (common stock and APIC)	$0.60

For parts a. and b. below, use a negative sign with answers to indicate a reduction.

a. Remeasure the subsidiary’s income statement, statement of retained earnings, and balance sheet into $US for the current year (assume that the BOY Retained Earnings is $3,840,619).

Round all answers in the "In US Dollars" column to the nearest dollar.

	(in CAD)	Remeasure -ment Rate	In US Dollars
Beginning inventory	2,346,750	Answer	$Answer
Purchases	6,139,350	Answer	Answer
Ending inventory	(2,816,100)	Answer	Answer
Cost of goods sold	5,670,000		$Answer
Land	2,058,840	Answer	$Answer
Building	3,780,000	Answer	Answer
Accum.deprec.—building	(1,890,000)	Answer	Answer
Equipment	2,520,000	Answer	Answer
Accum.deprec.—equipment	(1,260,000)	Answer	Answer
Property, plant, and equipment (PPE), net	5,208,840		$Answer
Depreciation expense—building	189,000	Answer	$Answer
Depreciation expense—equipment	252,000	Answer	Answer
Depreciation expense	441,000		$Answer
Income statement:
Sales	9,450,000	Answer	$Answer
Cost of goods sold	(5,670,000)		Answer
Gross profit	3,780,000		Answer
Operating expenses	(2,016,000)	Answer	Answer
Depreciation	(441,000)		Answer
AnswerRemeasurement gainRemeasurement loss			Answer
Net income	1,323,000		$Answer
Statement of retained earnings:
BOY retained earnings	4,961,250		$Answer
Net income	1,323,000		Answer
Dividends	(132,300)	Answer	Answer
Ending retained earnings	6,151,950		$Answer
Balance sheet:
Assets
Cash	2,689,470	Answer	$Answer
Accounts receivable	2,192,400	Answer	Answer
Inventory	2,816,100		Answer
Property, plant, and equipment (PPE), net	5,208,840		Answer
Total assets	12,906,810		$Answer
Liabilities and stockholders’ equity
Current liabilities	1,602,720	Answer	$Answer
Long-term liabilities	3,734,640	Answer	Answer
Common stock	630,000	Answer	Answer
APIC	787,500	Answer	Answer
Retained earnings	6,151,950		Answer
Total liabilities and equity	12,906,810		$Answer

b. Compute the remeasurement gain or loss directly assuming BOY net monetary assets of CAD (1,617,840), a net monetary liability.

Round all answers to the nearest dollar.

Change in net monetary assets:
AnswerBOY net monetary assets x (EOY - BOY exchange rates)BOY net monetary assets x BOY exchange rateSales x average exchange ratePurchases x average exchange rateOperating expenses x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net monetary assets x EOY exchange rateChg net monetary assets x (EOY - Avg exchange rate)Remeasurement lossEnding net monetary assets	$Answer
Chg net monetary assets x (EOY - Avg exchange rate)	Answer
AnswerBOY net monetary assets x (EOY - BOY exchange rates)BOY net monetary assets x BOY exchange rateSales x average exchange ratePurchases x average exchange rateOperating expenses x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net monetary assets x EOY exchange rateChg net monetary assets x (EOY - Avg exchange rate)Remeasurement lossEnding net monetary assets	Answer
AnswerBOY net monetary assets x (EOY - BOY exchange rates)BOY net monetary assets x BOY exchange rateSales x average exchange ratePurchases x average exchange rateOperating expenses x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net monetary assets x EOY exchange rateChg net monetary assets x (EOY - Avg exchange rate)Remeasurement lossEnding net monetary assets	$Answer

Answer 1

Solution: Part- a.
	in CAD	Remeasur-ment Rate	In US Dollars
Beginning inventory	2,346,750	0.70	1,642,725
Purchases	6,139,350	0.73	4,481,726
Ending inventory	-2,816,100	0.76	-2,140,236
Cost of goods sold	5,670,000		3,984,215
Land	2,058,840	0.74	1,523,542
Building	3,780,000	0.74	2,797,200
Accum.deprec.—building	-1,890,000	0.74	-1,398,600
Equipment	2,520,000	0.74	1,864,800
Accum.deprec.—equipment	-1,260,000	0.74	-932,400
Property, plant, and equipment (PPE), net	5,208,840		3,854,542
Depreciation expense—building	189,000	0.74	139,860
Depreciation expense—equipment	252,000	0.74	186,480
Depreciation expense	441,000		326,340
Income statement:
Sales	9,450,000	0.73	6,898,500
Cost of goods sold	-5,670,000		-3,984,215
Gross profit	3,780,000		2,914,286
Operating expenses	-2,016,000	0.73	-1,471,680
Depreciation	-441,000		-326,340
AnswerRemeasurement gainRemeasurement loss			-59,555	Balancing Figur
Net income	1,323,000		1,056,711
Statement of retained earnings:
BOY retained earnings	4,961,250		3,840,619
Net income	1,323,000		1,056,711
Dividends	-132,300	0.75	-99,225
Ending retained earnings	6,151,950		4,798,105
Balance sheet:
Assets
Cash	2,689,470	0.76	2,043,997
Accounts receivable	2,192,400	0.76	1,666,224
Inventory	2,816,100	0.76	2,140,236
Property, plant, and equipment (PPE), net	5,208,840		3,854,542
Total assets	12,906,810		9,704,999
Liabilities and stockholders’ equity
Current liabilities	1,602,720	0.76	1,218,067
Long-term liabilities	3,734,640	0.76	2,838,326
Common stock	630,000	0.60	378,000
APIC	787,500	0.60	472,500
Retained earnings	6,151,950		4,798,105
Total liabilities and equity	12,906,810		9,704,999
For part b answer more clear information needed. As shown in description table, it is vague and between two items a comma is required to understand clearly.